Solyndra Raid: Is Failure A Crime?

The FBI’s early-morning raid Thursday on defunct California solar startup Solyndra underscores the disconnect between Washington and Silicon Valley and raises a bigger question: Is failure a crime?

The timing may or may not have been coincidental – the search for documents related to the company’s $535 million federal loan guarantee came hours before President Obama was to deliver a prime-time jobs speech before a joint session of Congress. (Department of Energy representatives accompanied the FBI agents; only a month ago Energy Department officials joined with Solyndra executives and investors in an 11th hour attempt to secure badly needed financing for the troubled startup, according to the company’s bankruptcy filings.)

Congressional Republicans have accused the administration of improperly favoring Solyndra to benefit George Kaiser, a Tulsa billionaire who was an Obama campaign contributor and a major investor in the company. The maker of a high-tech solar panels became the first beneficiary of the administration’s renewable energy loan guarantee program and its factories were a favored photo op for politicians like Obama, who made an appearance at the company last year, and former California Gov. Arnold Schwarzenegger.

The optics, as they like to say in D.C., don’t look good. Among the revelations Thursday was that Kaiser and Solyndra executives had made frequent visits to the White House over the past two years. Henry Waxman, the powerful Democratic congressman from Los Angeles, meanwhile released a July letter in which Solyndra chief executive Brian Harrison insisted that the startup was in fine financial shape. (Solyndra’s bankruptcy filings show that at the time the company was scrambling to secure new capital to survive.)

Whether any of this is illegal remains to be seen. But what does seem clear is that Washington appears to have misunderstood the nature of investing in high-risk, high-tech startups.

Certainly the venture capitalists and other investors who poured more than $1 billion into Solyndra understood the gamble they were taking on a startup with a new, expensive and commercially unproven photovoltaic technology introduced into a volatile solar market dependent on government subsidies. Failure does not necessarily mean fraud.

In this town, failure is always an option and Valley veterans wear their blowups proudly on the sleeves of their polo shirts (provided crash-and-burns are followed by resurrections elsewhere). Solyndra was not the first solar company to get sidelined by the rapid rise of low-cost, government-subsidized Chinese photovoltaic manufacturers and plummeting prices for photovoltaic panels and it won’t be the last.

Let’s keep in mind that Solyndra filed its loan guarantee application to build a $733 million solar panel factory during the George W. Bush administration and it was approved in the early months of the Obama administration. At the time, Solyndra had raised more than $600 million from investors – not chump change, even by Silicon Valley standards – and solar panels were already rolling off its first assembly line. Chinese companies had just started to enter the U.S. market and seemed a distant threat. (Within two years they would become the world’s biggest suppliers of solar panels, pushing prices down by more than 50%.)

The Obama administration has made bigger bets on other commercially unproven solar technologies, such as the $1.6 billion loan guarantee for BrightSource Energy’s solar thermal “power tower” plant now under construction in the California desert. And a $2.1 billion loan guarantee offer for Solar Millennium’s 1,000-megawatt Blythe solar trough plant was belatedly turned down when the rapidly changing economics of the solar market led the company to switch to photovoltaic panels for the project.

Maybe the lesson of the Solyndra debacle is this: Rather than placing bets on individual companies and technologies, Washington should stick to writing the rules of the road, creating the broad regulatory and market framework to level the playing field between renewable energy startups and fossil fuel-fired competitors that bear no cost for their contribution to global warming .

That would entail something like enacting a cap-and-trade market or a carbon tax, policies the Obama administration has shown little political will to pursue. And of course most of the Republican presidential candidates profess not to even believe in climate change.